Government Levies on Energy Bills
Mr Tim Yeo (South Suffolk) (Con)
I am delighted that the House is debating this important subject. Its importance can be gauged by the fact that by 2020 the amount of possible spending under the levy control framework will be £7.6 billion a year, more than double the total budget of the Department of Energy and Climate Change. The fact that the money comes from consumers rather than taxpayers is, as far as parliamentary scrutiny is concerned, rather beside the point. The two categories largely overlap, and as the sums are so large it is essential that Parliament should scrutinise effectively and carefully how they are spent. I shall come back to that point.
I begin by drawing attention to my entry in the Register of Members’ Financial Interests. In doing so, I emphasise again that my views on climate change and the need to cut greenhouse gas emissions were formed more than 20 years ago, when I had ministerial responsibility at the old Department of the Environment in John Major’s Government. I studied the science as it then was and concluded—as, I hope, an open-minded layman—that the increased concentration of greenhouse gases in the atmosphere was likely to be a significant and possibly the main cause of the observed changes in the climate that the world was and still is experiencing.
My views have not changed in the intervening 21 years. I have expressed them regularly in private and public as a member of the Government and of the shadow Cabinet, including as shadow Secretary of State for the Environment and for Trade and Industry, and as a Back Bencher. The financial interests recorded in the register have all been acquired since I left the Front Bench in 2005. Suggestions that my views have in some way been influenced by those interests are not supported by the facts.
I hope and believe that we are now seeing the last gasps of the flat-earthers in the debates on climate change. The Intergovernmental Panel on Climate Change fifth assessment report has reinforced the overwhelming scientific consensus that the conditions of climate stability that the world has enjoyed in the past few hundred years and which have made possible the unprecedented and phenomenal success of one of the earth’s most recently arrived species—human beings—are now threatened by the activity of that same species.
I warmly welcome the public statements made in various parts of the world in the past few days by my right hon. Friends the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Education, all of whom have endorsed those scientific conclusions. That mainstream acceptance of the science, which is shared on a bipartisan basis by the Opposition, is very helpful because it allows us to concentrate on what the real debate should be about: how should we in Britain tackle the challenge of cutting our own greenhouse gas emissions? How can we play our part in helping the whole world move towards a low-carbon economy?
Of course I understand the fears of some about the short-term additional cost of low-carbon investment and the burden that that might place—particularly on poorer households, for whom energy bills are a significant anxiety. I also understand fears about the wider impact that that cost could have on Britain’s competitive position. Those are all legitimate concerns, and they should be assessed in the context of the knowledge that action in Britain alone will not solve the problem.
However, we need to be aware that other countries are now moving quickly—surprisingly quickly in the case of China, perhaps. Even in the United States a substantial change in what is happening on the ground has occurred in the past few years. Those extra costs will disappear entirely if the price of carbon rises, as seems probable if international concern about climate change intensifies in the next few years. I am confident that those countries—I hope that Britain will be among them—that lead the way towards a low-carbon economy will in the medium term not just have done the right thing environmentally but reap an economic benefit, in the form of lower costs and improved competitiveness, as the price of carbon rises, whether owing to the widespread introduction of carbon taxes, to a carbon price driven by emissions trading or, as seems most likely, to a combination of the two.
All that is directly relevant to this debate. I warmly welcome the establishment of the levy control framework and the pathway to 2020 helpfully set out by the coalition at the end of 2012. That was reassuring for investors and gave great encouragement to those of us such as me who are extremely concerned about climate change. It encouraged us to see that a realistic amount of support will be available to promote and support low-carbon electricity generation, including a significant element of renewable energy.
I want to look first at the scope of the levy control framework—what it covers and what it does not. We already know that a range of low-carbon electricity generating technologies will be covered; they have already been identified and strike prices for contracts for difference have been announced. It would be helpful if the Minister confirmed this evening that the list is not exhaustive and that proper consideration will be given in future to extending it. None of us knows today what technologies may be available in a few years’ time; some may offer better value for money than those available now.
I would also like the Minister to clarify how the capacity mechanism will fit into this. There is an urgent need for clarity on this subject. He will be well aware of the narrow margin of surplus generating capacity that will exist a year or two hence. Part of that problem is caused by the reluctance of investors to commit to new investment in gas-fired power stations, despite the glittering prospect of large quantities of domestic gas reserves if the reluctance of local communities to exploit them by using fracking can be overcome. I welcome the Government’s incentives, but I am not sure that they are yet sufficient to persuade some of the residents in beautiful parts of our crowded countryside. We are even seeing a reluctance among investors to bring existing gas plants out of mothballs. That reluctance is unlikely to be overcome until more details have been revealed of how the capacity mechanism will work in practice.
Of course, levy control framework money will not be confined to supporting electricity generation. Any light the Minister can shed on how it can be used to support demand-side measures would be welcome. It would also be useful to explore how the cost of supporting carbon capture and storage—on which I welcome the recent progress that has been announced—will fit into the other priorities for the levy control framework.
On to the key issue of expenditure control, levy control framework spending will, by its nature, be very hard to predict: the lower the price of gas, the greater the cost of the contracts for difference that has to be met from the LCF. Given that the Department for Energy and Climate Change forecasts that, by 2020, as much as a third of all LCF spending will be accounted for by CfDs, it would be helpful to know what assumptions my right hon. Friend has made about gas prices in the pathway through and up to 2020 in arriving at the estimate of about £2.5 billion of LCF spending that is to be allocated to meet the cost of CfDs.
Will the Minister also say a bit about what will happen if gas prices turn out to be much lower? That would, of course, be a happy scenario for consumers, because it would mean that their energy bills were lower, but it might result in a substantial shortfall in the LCF. How will that cost be met? Will consumers be expected to bear the burden of the overrun? That might not be such an unreasonable prospect, given that in such circumstances the part of consumer bills accounted for by the wholesale gas price, which is substantial, would be lower than expected.
By the same token, the opposite scenario is also interesting. What will happen if gas prices are much higher than expected? In theory, at least, the cost of the CfDs could be zero. Does that mean that lots more contracts would be offered to allow a much greater level of guaranteed support for low-carbon electricity generation, or would the Government simply rely on the market to incentivise new low-carbon investment in view of the rising cost of fossil fuels?
In view of all those uncertainties and the inherent difficulty of making long-term future projections about energy prices, will the Government publish annually an update on the assumptions about the gas price they will use in reaching their judgment about the cost of CfDs within the LCF?
On the subject of controlling costs, I would be very interested to hear the Minister’s comments about the value for money offered by different technologies. The main aim of the renewables obligation, feed-in tariffs and CfDs is to help Britain meet its greenhouse gas emission reduction targets by encouraging low-carbon electricity generation, but affordability is also a very important aim of energy policy. I note with interest that the Government believe that offshore wind may make the biggest contribution of all the technologies currently included for support by the LCF.
Caroline Lucas (Brighton, Pavilion) (Green)
I am reluctant to interrupt the hon. Gentleman, because up until now I have agreed with everything he has said and I fear that my question might lead us to depart from that. Does he agree that if we compare the strike price for nuclear in 2023 with the price of offshore wind, onshore wind and even solar photovoltaics in 2023, we will see that nuclear is vastly more expensive, and that if we are serious about keeping energy bills down, it is ludicrous to support those technologies whose price is likely to go up, rather than those whose prices are coming down?
Mr Yeo
I had a hunch that that was the issue the hon. Lady would raise. For the most part I agree with a great deal of what she says on this and some other subjects. It is perfectly true that, arithmetically, nuclear is very expensive. I think that the decision, which I support, can be justified on only two grounds. The first is that I am uncertain that, even with all the other support, we will be able to generate enough electricity from low-carbon renewables to meet the targets we have set for 2020 and beyond, from 2030 through to 2050. It would need some pretty heroic assumptions about the roll-out of some of the technologies to think that we could replace the whole of the electricity currently generated by nuclear with electricity from other low-carbon sources.
Secondly, I think there is a real prospect—though I do not suppose I will carry the hon. Lady on this point—of the cost of nuclear coming down substantially if we see a big expansion of the industry. Nuclear power stations in China, for example, are going to become almost a commodity given the number that will be rolled out. In the 2020s, we might find that we will be able to buy them off the peg at a much lower price than the admittedly high price currently expected for Hinkley Point.
Andrew Percy (Brigg and Goole) (Con)
I, too, share my hon. Friend’s concern that we will not be able to replace current generation with renewables in the way predicted. Does he, therefore, share my concern that, because of the recent “final investment decision enabling for renewables” process, we are likely to lose Eggborough power station, which currently accounts for between 2% and 4% of the UK’s generating capacity, along with 800 jobs? Given that it was a shovel-ready project, it is frankly bonkers and utterly barking mad that it has not been given the go-ahead for biomass conversion.
Caroline Lucas
It is not just a question of heroic assumptions about renewables. Actually, I think those assumptions are not so heroic, particularly if we add community energy and energy efficiency, which along with conservation is always the poor cousin in this debate. We know that we could make huge inroads on the amount of energy we use if we were serious about that. If we combine that with renewables, there is plenty of evidence from the Centre for Alternative Technology and many others that we could get the nuclear reductions we need without nuclear or more fossil fuels.
Mr Yeo
I take note of what the hon. Lady says and I respect her views, but she has not quite persuaded me that it will be safe to say no to nuclear in the immediate future. I think it is useful to have it as a weapon in our armoury, notwithstanding the high cost of this first new nuclear power station, but it is worth looking at and updating our assumptions. Nuclear is not exactly going to be in production tomorrow. There are still a few gaps to close between cup and lip before it will be in the bag. I am sure the European Commission’s objections can be adequately dealt with and I shall write to the Commission myself shortly on that very point.
I want to discuss a possible scenario. Of all the technologies being supported at the moment, the biggest expectation is for offshore wind. In 2017, offshore wind will qualify for a strike price of £140 and onshore wind for a strike price of £95, and let us suppose that the price of gas-fired electricity will be about £50 at that time. In effect, we are saying that offshore wind requires a subsidy that is double that for onshore wind and 40% higher than that for large-scale solar PV. Does that really represent good value for money for consumers?
Hitherto, I think that most consumers have been bewildered about the cost of supporting different low-carbon technologies. A system of renewable obligation certificates is obscure even to those of us who have tried to take an interest in the matter for a number of years, but suddenly it is going to become clear that certain technologies are very much cheaper than others. I wonder if, with a generous system of incentives, some of the cost advantages available to onshore wind—I know that it is probably the most controversial form of energy—were shared with the communities hosting onshore wind farms, some constituents might find the possibility of having a couple of wind turbines on the other side of the village green, given the offer of a freeze in their electricity price for as long as they were in production, less unacceptable than they currently do, but I merely speculate.
Staying with 2017, let us suppose that the gas price falls much lower, which many people would of course welcome. That would raise the cost of the already awarded contracts for difference that have to be met from the capped levy control framework. Is there a risk that the Government might have to stop offering any new contracts for difference, because it was clear that all the available money would be used up by the contracts already awarded? In that context, will the Minister explain why the Government think it is sensible to plan for as much as a third of all the electricity generation supported through the levy control framework to come from offshore wind, which is one of the most expensive forms? Will he comment on the danger that some projects that offer better value for money might get squeezed out if too much is allocated to expensive technologies early on?
Without clarity on such issues, there seems to me to be at least a risk of uncertainty in the system putting off some investors. It might at least encourage others to factor into their projects a higher price for the return on capital than would otherwise be needed in a more certain context.
Mr Mike Weir (Angus) (SNP)
I am listening closely to the hon. Gentleman, but I am slightly confused about what he is saying on offshore wind. The whole point of contracts for difference was to give certainty, as well as to give a boost to emerging technologies and get them off the ground. If the Government are now looking at not perhaps granting so many of them, does that not undermine the whole purpose of the contracts for difference system?
Mr Yeo
It depends on our priority. Mine would be to get the largest amount of low-carbon electricity generated at the least possible subsidy cost to consumers. Given the figures that are currently projected, I am simply saying that the mix looks unlikely to achieve that objective. I entirely understand the hon. Gentleman’s point that if we are to support any technology, a degree of predictability is important for encouraging investment—I am not advocating a lot of chopping and changing—but at the same time, we are in the early stages and getting better value for money might be such a high priority, given the burden that energy costs now represent to consumers, that we should consider whether the projected mix is right.
On the subject of uncertainty, although the levy control framework helpfully gives a considerable degree of predictability for the rest of this decade, seven years is not all that long given that the investment cycle in the energy industry is very long. Will my right hon. Friend say when we might get at least an indication of the likely levy control frameworks beyond 2020?
That is particularly important in the light of the issue that the hon. Member for Brighton, Pavilion (Caroline Lucas) has just raised about nuclear. There is clearly at least a perception that nuclear will take a great chunk of levy control framework money in the 2020s. If we do not know the total, some people thinking of bringing on new investments later in this decade may be put off because they fear that not enough money will be available.
The Minister of State, Department of Energy and Climate Change (Michael Fallon)
I am not sure whether I heard my hon. Friend correctly. Is he really asking me to advise the House on public expenditure totals beyond 2020—two elections hence?
Mr Yeo
I am not sure whether the total comes under public expenditure. The money is not coming from taxpayers; it might merely affect electricity prices. In the context of the fact that the Committee on Climate Change now sets carbon budgets a minimum of a decade in advance and that we now have a fourth carbon budget that covers the period up to 2028—even the third carbon budget goes beyond the period for which we know the levy control framework total—I am simply asking for some indication of the Government’s thinking. Will the total be maintained in real terms at £7.6 billion index-linked, given that a very big demand on levy control framework money will be made in the early to mid-2020s if the nuclear power station goes ahead?
Dr Alan Whitehead (Southampton, Test) (Lab)
To underline the hon. Gentleman’s point, does he agree that the likely take on CfDs in one year when Hinkley C comes on stream in 2023 will probably be more than the total money currently available for new entrants under the levy control framework? Does he therefore wish to emphasise that it would have a seismic effect on CfDs over the period 2020 to 2025, and the Minister might also want to consider that point?
Mr Yeo
I think of the hon. Gentleman as an hon. Friend, because we agree on so many important issues. He has made his point quite effectively, without the need for me to comment on it. I remain a supporter of investment in new nuclear power stations, notwithstanding the concerns about the arithmetic eloquently introduced into the debate by the hon. Member for Brighton, Pavilion. I simply make the point that without any knowledge of the levy control framework total in the 2020s, there is certainly a perceived and probably an actual risk that nuclear might crowd out some other technologies.
May I tempt the Minister to tell us what he thinks is the prospect for the floor price for carbon?
Mr Yeo
I thought that the Minister was a bit like Oscar Wilde, who could resist everything except temptation, but perhaps he will resist it on this matter. I understand why the floor price policy was introduced, but it does not cut greenhouse gas emissions by a single kilogram, and it raises the costs of British business. If the Treasury’s priority is to help Britain to become more competitive, it is slightly bizarre for it to insist on that policy. There are of course now widespread rumours that we will soon hear that the floor price for carbon will be frozen, instead of going ever upwards. If that is the case, the sooner that it is made clear, the better.
Mr John Redwood (Wokingham) (Con)
Given the mounting pressure generally from industry across Europe against very high energy prices, which forces investment outside Europe, does my hon. Friend think that the whole European framework on carbon is due for substantial amendment?
Mr Yeo
I cannot go down the route suggested by my right hon. Friend and remain within the scope of this debate, but I simply say that it is in everyone’s interest to make the European Union emissions trading system work more effectively. If it did, there might be no need for the floor price for carbon anyway. An EU-wide carbon price driven by a trading mechanism would at least be even-handed in its impact across the 28 countries of the EU, and it would not place a special burden on Britain in the way that the floor price for carbon currently does. I therefore urge the Minister to throw Britain’s full weight behind efforts being made to make the EU emissions trading system work more effectively.
In conclusion, I draw attention to my Committee’s recommendations about how the Department should report to Parliament on the cost of all schemes funded by the levy control framework. I hope the Minister agrees that accepting the recommendations would boost confidence in the Government’s readiness to seek value for money from levy control framework funds and to be transparent about decisions. As I have mentioned, the present system of renewable obligation certificates is pretty hard for most consumers to understand; feed-in tariffs, contracts for difference and the whole levy control framework should be easier for the public to comprehend. The establishment of the levy control framework was a positive and helpful development, but I am sure that my right hon. Friend recognises that exercising effective parliamentary scrutiny on how those very substantial sums of money will be spent is essential for public confidence. I commend my Committee’s report to the House.
John Robertson (Glasgow North West) (Lab)
It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo). He does an excellent job as Chair of the Energy and Climate Change Committee and it is a pleasure to be a member of it.
My great fear is that we are losing sight of climate change. With the country in austerity, people see cheap fossil fuel as an answer to their prayers as they try to keep costs down. However, climate change causes long-term damage, as we have seen with the recent floods, which are more than a little unusual. Some of us believe that that is down to climate change in at least a small way, if not in a large way.
The levies are important. About 50% of the cost goes to pensioners and those on low incomes who need help from schemes such as the warm home discount. The rest goes towards increasing investment in new plants, in the hope that there will be affordable energy in the long run. I have often taken part in debates on these matters and I make no apology for wanting to look after those in society who have the least and who need the most help.
The explanation of the levy control framework by Her Majesty’s Treasury states that its aim is to ensure that the
“fuel poverty, energy and climate change goals”
are met
“in a way that is consistent with economic recovery and minimising the impact on consumer bills.”
I think all Members of the House would agree with that, but sadly it does not happen.
The National Audit Office says that the levy control board has
“focused on cost control and not the associated impacts on energy policy outcomes.”
It is looking at only one half of the equation. We need to look at the impact of the levies on consumers’ bills, whether it is as high as the energy companies say it is or not. However, we can see their worth only if we know what the impact is. The Department of Energy and Climate Change says that its energy and climate change policies will reduce bills by about 11% or £166 by 2020. How can we know if that is the case if we do not know what the impact of the policies will be? We need to be sure about the impact on people’s energy bills.
There are recommendations in the Select Committee’s report that would make the information on that clearer. For example, it recommends:
“Easily identifiable ‘costs per customer’ for each scheme on a consistent basis across years and between reports”.
Clear reporting on how levies are be raised and spent is particularly important because the levy control framework limit will increase from £3.184 billion in 2013-14 to £7.6 billion by 2020-21. Some 83% of people are worried about energy prices, so it is important to ensure that we do not contribute to the increase in prices.
Mr Weir
The hon. Gentleman is making a very good point. Is it not also important that it is made clear exactly what the impact of a levy is on individual bills? We are often told that green levies are pushing up bills, but the renewables obligation actually makes up a relatively small part of the average dual fuel bill.
John Robertson
The hon. Gentleman makes a very good point. I have always felt that the amount of information that goes out to the ordinary person in the street when he opens his gas and electricity bill is either too complicated for him to understand or too simple and does not provide enough information. The Government have to ensure that people are educated. I am not talking only about the education of the general public, but about the education of the energy companies. They need to understand exactly what their job is in relation to customers. Yes, they are there to make money and to deliver electricity and gas, but they forget that they are dealing with real people—real people’s lives and jobs.
There has to be stronger control of the companies. If we are to take money through the levies, we need to ensure that it is spent properly and, to go back to the Treasury’s statement, that it is used to look after people in fuel poverty. We need to make it easier to show that the energy companies are trying to pull the wool over our eyes.
Mr Redwood
Does the hon. Gentleman not understand that the main reason that the bills are so high is the adoption of low-carbon technology? It is not the gross profits of the companies but the low-carbon technology that is pricing us out of markets and creating high bills for consumers.
John Robertson
The right hon. Gentleman and I have bandied a few comments between ourselves over the years. The simple answer is that I just do not agree with him. I think he is wrong. He should look at the big picture and not just at one side of the equation. There are always two sides to an equation, with an equals sign in the middle. Both sides have to be looked after, otherwise there is an unfair balance. That is what we have at the moment.
The levies make up £112 or 9% of a bill. However, bills have gone up by £300 in the past three years. Energy companies often blame the levies for the increase. An example of that is npower’s patronising propaganda in its “Energy Explained” document of January 2014, which blamed levies and even the public for the increase. Its chief executive, Paul Massara, said:
“The actual unit price of energy in the UK is one of the lowest in Europe—but bills are high because British houses waste so much energy.”
That comes from a company whose executives get a fortune in bonuses. They do all right from their company, but at the end of the day, vulnerable customers cannot afford to pay their bills, let alone install energy efficiency measures.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
My hon. Friend is making some good points. Is it not ironic that, despite what the Government say, the levy that faces the biggest reduction is the energy company obligation, which is designed to encourage energy efficiency? We all accept that it needs reform, but is it not tragic that it is the people who lose the most money through energy inefficiency who will lose out if the impact of the energy company obligation is reduced?
John Robertson
My hon. Friend makes a good point. I will go into that matter in more detail in a moment.
The energy companies always seem to cry wolf. I think that they have cried wolf once too often. We need to have ever more control over the companies. The Minister knows my opinion on splitting the energy companies into generation and retail companies. I believe that is the way forward. That would create more companies and just might create the competition that appears not to be there at the moment.
There is a contradiction in what the chief executive of npower has said, because the company is also calling for cuts to the levies that would help people to improve the energy efficiency of their homes. The Government have allowed the energy companies to blame the levies for their own greed and manipulation of the market—I mean the greed of the companies, not of the Government. The Government are unwilling to stand up to the energy company barons. In my opinion, they serve them before our constituents. Instead of challenging the companies on their scare stories about the effect of green levies on bills, they announced that they would cut the energy company obligation and the warm home discount. How do they know what to cut if the levy control framework is not monitoring the policy impacts effectively?
The Government have cut ECO despite the chair of their Fuel Poverty Advisory Group saying:
“It is completely inequitable to attack the only measure that is doing something for the fuel poor in England.”
He said that the Government could face a judicial review if they go ahead with the cuts to ECO because of the statutory commitment to reduce fuel poverty.
The companies have held the Government to ransom over this decision. They have said that they will pass on a £50 cut to consumers and they are putting pressure on the Government by saying that they will raise prices in the months before the election if there is not a second stage to the cuts. Even after the cut to green levies, energy bills rose by an average of more than £60 this winter. It is fortunate that the winter has been so mild; otherwise we might be talking not just about prices, but about the number of people who have died of hypothermia. It is fortunate that temperatures have not been low this winter, and let us hope they do not fall in the short time remaining before the spring.
The problem is not levies, but the broken market. Policy costs are responsible for 15% of the rise since 2010. Every consumer group in this country that deals with energy has complained about the greed of energy companies, and the fact that they have ripped off customers. Energy company greed should be looked at extensively. The people at Ofgem are not bad, but they do not have the teeth to do the job they want to do. My hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) may argue that we should get rid of Ofgem. Unless we start to see more from it, perhaps he is right and we should get rid of it and put in its place something that really does the job of looking after not just companies, but the people who use the power they produce.
We need an energy price freeze, but why? Everyone says that that would be terrible, and that everything would fall apart and the energy companies would disappear. That will not happen, and the Minister knows that. There is too much money in this country for the energy companies to disappear. However, we must call a halt, look at what is happening, sit down and talk about what we want to change and why, and put together an energy system so that people can make money and provide energy, and customers can be assured that they are receiving value for money for taxpayers. An 18-month freeze on prices will allow the Government—I hope that they will be a new Labour Government—to sit down and work out what they want to do with their energy policy without worrying about whether they have to fight someone over an energy price rise. At the end of the 18 months, people will know exactly what is going to happen. That policy would be popular and right.
The Government are scrambling around trying to find something different to win support at the general election and if they come up with something better, I am sure those on our Front Bench will support it. However, at the moment, our offer is the best on the table for the general public. The Government are out of touch and it is time they got back in touch.
We are not here to fight the Government. In many ways, the Labour Government had almost exactly the same policies as those on the Front Bench today. We all agree on one thing: energy is important. The only thing we do not agree on is the priority. We prioritise the poor and the vulnerable, but the Government prioritise the companies.
John Pugh (Southport) (LD)
Today is estimates day, and in the past I have made the mistake of talking about the estimates. That was a schoolboy error. Estimates day is rather like “Fight Club”. The first rule of fight club is that members do not talk about it, and we do not talk about estimates on estimates day. It is in fact an occasion to raise issues about energy levies and so on.
I have an issue, and I must preface what I say by disclaiming the expertise that has been shown in the Chamber. I am no expert in the matter. My background in it is limited, but I want to air some big concerns, or at least one big concern—the Government’s ECO scheme, which is paid for from levies and monitored by Ofgem. As I understand it—I repeat that I do not perfectly understand it—it is multi-dimensional and it subsidises insulation, community schemes, and boilers and their replacement. It has two distinct targets: fuel poverty, which needs addressing, and carbon saving, which is a general global imperative.
It has been acknowledged that the ECO scheme has slowed down since the autumn when the debate on energy prices took off, but even prior to that I had concerns about the operation of the scheme as it stands. It depends on an industry superstructure to enable boilers to be replaced and consumers to be provided with what they need. That industry superstructure and the industry in general are in a parlous state. I have been reliably informed by people who ought to know that there has been a collapse in the market and that boilers are not being fitted with the same frequency as previously. There has been a boom and a bust. Not so long ago, there was a huge boom; now there is a substantial bust, as there is with solar panels. There are lay-offs in the trade and providers do not want to engage further. We may be looking at a slower but similar car crash to that in solar. The reasons seems to be relatively straightforward.
The remuneration that the providers hope to get from the energy companies is either plummeting or is extraordinarily fickle and unpredictable so that they cannot make their business work. For a £1 saving in carbon over a lifetime they used to receive 25p, but they now get 8p or less, and sometimes they do not know what they will get. The alternatives are not wholesome. They can fit low-class boilers, probably with inadequate maintenance arrangements, or they can concentrate on houses where carbon savings are greatest: hard-to-heat mansions.
Apparently, hard-to-heat mansions are becoming increasingly attractive. Not so long ago, the Daily Mirror printed a report about a premier league footballer who benefited under the ECO scheme, and there have been reports of people in serious fuel poverty who cannot currently benefit. There is evidence that the big providers do not want to deal too much with the fuel poor. I have seen a letter from British Gas to Sefton council asking it not to send any more referrals because it does not want to deal with fuel poverty at the moment.
My constituency has many Victorian terraces of single occupancy, hard-to-heat accommodation with old, inefficient boilers, and it seems almost impossible to make a commercial case to any provider unless the applicant can make a contribution. However, if they are in fuel poverty, they simply do not have the resources to do so. Fuel poverty seems to be fighting the other target: carbon saving. A genuine case can be made for dealing with hard-to-heat mansions, particularly if they are occupied by pensioners who may be able to qualify under some criteria.
I have had discussions with Ministers at various levels and they are more sanguine than I and the providers are. Will the Minister explain why British Gas writes to Sefton council and why energy companies make representations saying they do not want to engage with fuel poverty now? Will the Government publish up-to-date statistics so that we can see what progress is being made to alleviate fuel poverty? Will they give figures for the number of boilers fitted in fuel poverty homes, and say how close they are to the £540 million target for alleviating fuel poverty? Above all, given that I am not the expert, I would like them to speak to the companies and providers. I know that this is not the Minister’s immediate responsibility, but will he arrange a meeting with providers and assessors to look at the evidence and, if the ministerial team believes that things are going right, explain why, and why the providers think they have a problem.
At the moment, there seems to be some slight evidence of a bunker mentality. The issue was raised on the “You and Yours” radio programme, but the Department did not provide someone to tell its story. It must tell a better story, or own up to a problem and try to fix it because the problem is genuine.
Clive Efford (Eltham) (Lab)
On a point of order, Madam Deputy Speaker. I wonder whether you have had any indication of whether the Secretary of State for Culture, Media and Sport intends to come to the House to make a statement. A letter has just been issued in which the Government now accept many of the amendments that we had tabled to the Gambling (Licensing and Advertising) Bill on such issues as the watershed, a one-stop shop for problem gamblers, spread betting and financial blocking. This includes adopting many of the measures that we were calling for to protect vulnerable people in relation to fixed odds betting terminals in betting shops. That is a complete turnabout from the Government’s initial position, when they resisted all our amendments. The letter also refers to the Government announcing their position over the weekend. I do not recollect the House sitting over the weekend. I think the most appropriate place for the Government to announce changes in policy is in this House, Madam Deputy Speaker, and I wonder whether you have had any notice from the Secretary of State that she intends to come here and explain herself.
Madam Deputy Speaker (Dawn Primarolo)
I have not received any notification of a statement from the Secretary of State. It is not an uncommon practice for the Government—all Governments—to move amendments in the Lords. The hon. Gentleman’s point is not a point of order. As I understand it, the Bill will have to come back to the Commons, and I am sure that he will then find ways to make the points he has just made. He has got his views on the record.
Dr Alan Whitehead (Southampton, Test) (Lab)
I want to draw attention to a number of curiosities in relation to the levy control framework and Government levies for underwriting various new, and sometimes not so new, forms of power for the future.
The first curiosity is that the levies are not in the estimates: according to accounting conventions, they cannot be. One of the central things to which the Energy and Climate Change Committee drew attention was the fact that because the current accounting regulations mean that levies cannot be placed within end-of-year accounts or estimates for the Department, some fairly urgent action is needed to bring those issues back under the parliamentary gaze and make them accountable to and discussable by this House.
As we heard from the hon. Member for South Suffolk (Mr Yeo), the Chair of the Committee of which I am proud to be a member, much work to decarbonise the UK’s energy economy is underpinned by levies on energy bills. The chosen instrument that the Government have introduced to control those levies is the levy control framework, which is itself a very curious beast that was introduced by sudden fiat in the Budget of 2011. It was announced in the additional document to that Budget called “The Plan for Growth” but without, as far as I know, any debate, pre-scrutiny or other examination of its effect as regards the inclusion or exclusion of various levies. Subsequently, without that examination, it has controlled, pretty selectively, DECC’s spending on support for renewable and low-carbon energy.
I say “selectively” because although it was claimed, as the original Treasury paper stated in introducing it, that that the levy control framework
“will include all DECC’s existing or new policies which entail levy-funded spending”,
it does not do anything like that. In effect, it controls selected and nominated levy-funded underwriting for certain activities. It initially controlled the renewables obligation and the feed-in tariff for smaller renewables, and it has controlled the warm home discount, although that has recently disappeared into general taxation. In future, it will control the renewables obligation’s successor, contracts for difference, with continued payments from the renewables obligation after the system switches in March 2017. The RO will not go away; it will continue for a long time after the change has taken place and will continue to control feed-in tariffs for solar and small-scale renewables.
The total controlled expenditure will be some £7.6 billion, in 2011-12 prices, in 2020-21, rising from just over £3 billion in 2013-14. That sounds not just like a lot of money but like a huge increase in money, but we must remember that it is the total that has to underwrite the target of 30% of renewable electricity generation by 2020. In some scenarios published by DECC, it may just about achieve that, but in other unpublished scenarios it may not. The reason it may not is that the expenditure total has to include not only the cost of new entrants each year, as those new entrants come to produce renewable and low-carbon power that contribute towards the target, but the cumulative overhangs of what has already been agreed previously under the renewables obligation or, after 2017, contracts for difference payments, which will run on for 15 years after they have been agreed. In most instances, RO payments will continue for 10 years after they have ceased being issued in 2017. Over the whole period up to 2020, certainly, and even after that, all the payments that have been agreed for any new projects will continue throughout the whole period and will accumulate within the levy-controlled total expenditure.
We do not know how the figure of £7.6 billion for 2020 was arrived at—it was simply announced. Only more recently have estimated figures on the annual margin that will be available for new entrants every year been published. It turns out that those figures will be slightly less per year than is currently available for new entrants each year in terms of new renewables obligations and, subsequently, contracts for difference. I personally feel that given DECC’s figures on how it will achieve a doubling of the deployment of mainly offshore wind by 2020, the aspiration is probably a little heroic.
Another curious aspect of the levy control framework is that it controls the sums involved but not what is actually deployed. In the case of the renewables obligation, it is reasonably possible to forecast what expenditure might be against deployment. Indeed, according to the National Audit Office, DECC has produced pretty accurate figures for this over the several years of the levy control framework so far. However, when contracts for difference are introduced in March 2017, it will be much less easy to do that. That is because the amount of underwriting, and hence levy, that arises from a contract for difference is inherently variable and only predictable in ballpark terms. What a generator gets as a payment is the difference between the agreed amount for the strike price and the reference price, which is the prevailing price of wholesale electricity in any one month. If the price dips, the amount paid increases; if the price rises, the amount paid decreases.
It is certainly conceivable, as the Chairman of the Committee suggested, that in circumstances of a high wholesale electricity price, generators could start paying back money that they have obtained because the reference price is higher than the strike price. It would be interesting to see whether any consideration has been given to how that money coming back might be deployed and whether it would be put towards more renewables investment or disappear into the Treasury; I suspect I know the answer. It is at least a possibility that that could happen over the next period. The point is that the generator gets a known return but the levy payments themselves could vary enormously. If, for example, the Chancellor caps the carbon floor price in 2016, that would probably reduce the price of electricity, albeit by encouraging high-carbon generation. It would, however, increase the payment that generators get from the CfD, possibly quite substantially. Owing to the fact that the amount is capped each year against a small amount of additional headroom for the Department, which then needs to be adjusted over the next year in the Department’s subsequent estimates, room for new entrants could be dramatically squeezed through the payments of larger sums each year. Therefore, as a tool to cap expenditure on levies, the LCF may function, but it cannot underpin a clear level of deployment over time. It deals with one side of the equation but not the other.
The next curiosity of the levy control framework is that it does not really control levies overall. As we saw recently, the only levies that were removed or altered in the so-called green levy review were ones that did not have a control over them at all, or that will be out of the LCF by 2020. As we have heard, the energy companies’ levy-based obligation is exactly in line with the levy control framework. What was not within it was eviscerated, with calamitous consequences for local authority and housing association solid wall and hard-to-treat home schemes. The warm home discount has gone into being funded by general taxation.
The levy control framework is supposed to control levies that are defined by the Office for National Statistics as tax and spend—that was in the original Treasury document that set out the LCF. In fact, it is defined by the ONS as putative tax and spend. Although no money goes into the Exchequer, the effect on the consumer is as if a tax had been levied, but with no control over it. As I have underlined, that was the stated intention of the LCF in the document that introduced it.
The original levies preceding the levy control framework were introduced precisely because they were off the books and would not count against spending totals. However, the LCF effectively makes them count again, dependent on the ONS definition. One might say that a policy that levies charges on consumers because it does not count, but is then controlled through a mechanism that makes it count, is rather a circular policy. In the long run, it might better be replaced by a policy that levies a tax on companies and people’s wealth, and then allocates that to underwrite the desired deployment to plant—perhaps that points out something that must not be said.
The levies counted in the levy control framework will be, as the original document states, based on ONS independent definitions. However, the ONS barely got round to classifying previous levies—the community energy savings programme and the carbon emissions reduction target—before the LCF came in. Indeed, it classified those as putative tax and spend, but only after they had come to an end. The Treasury then had to predict what the ONS might do if it classified some newer levies to set up the LCF.
One could say that the choice of what was in or out when the levy control framework came about has essentially been a political and not a statistical decision, underlined perhaps by the curious fact of two enormous levies. One of those is the energy company obligation, which could perhaps now come to £2.6 billion over four years. Most significantly, coming down the road, we ought to know the capacity market payment system, which is potentially £1 billion a year on average until 2020. Those are levies on customers’ bills to persuade energy companies to build gas-fired power stations and make them available for the provision of power, not to pay them for providing power. If they then provide power, having made themselves available and got a levy as a subsidy, they will be paid again. That is definitely coming down the road—a huge levy increase outside the LCF. Those are clearly levies and will turn up on customers’ bills. Probably, if included, they could double the control total.
The ONS has not yet got round to considering whether ECO should be counted in, and as far as I am aware—probably for quite prudent reasons—it has not gone anywhere near capacity payments. In any event, DECC is still figuring out how to manage and control such matters, as well as how to manage and control the energy demand reduction side of capacity market payments should they be included in the energy auctions that, as I have mentioned, will be coming down the road.
Some levies have, of course, already gone down the taxation route. The renewable heat initiative was to have been a levy but it is now funded from general taxation. The warm home discount has recently gone from being a levy to being funded by general taxation, and—still to come—the money to support carbon capture and storage has shrunk to £1 billion and is also funded from general taxation, with no clarification as to whether subsequent CCS gets a CfD, and will eventually be in the LCF. Perhaps it will get capacity payments that are levied but not in the LCF, or perhaps it will just get support from tax. There is, therefore, no consistency about what is controlled and what is not, and apparently no clarity on the horizon.
We then come to the next curiosity of the system. Apparently, including estimates and outcomes of levy controlled expenditure—it never really arises as solid tax in and solid expenditure out—cannot, as I have emphasised, safely be put in departmental estimates or end-of-year accounts. Since 2012, no levy expenditure in accounts or estimates has been put forward by the Department. That brings us back to where we started. The LCF was sprung into being without debate or scrutiny from this House. We do not know what goes into the figures in the framework or whether the expenditure undertaken is value for money, because none of the workings is in the accounts and estimates. We do not even know what relationship there is between the policy objectives of each levy and their likely realisation. It seems that the agreed policy outcome of the deployment of renewables has possibly been seriously compromised by the introduction of the LCF, but we do not know because nothing is there to assist with finding out.
We know that ECO will now not even remotely reach its suggested policy target of 180,000 hard-to-treat home treatments by 2015, but we have not had a chance to discuss or debate either the initial policy or its revisions. The whole question of levies lies, it seems, outside the policy and scrutiny process. Both the NAO and the Energy and Climate Change Committee found that to be highly unsatisfactory, and suggested imperative remedies. In a letter to DECC, and in its most recent report on the LCF, the Committee suggested:
“There should be a single annual report covering all the DECC levy-funded schemes along with other Government initiatives which affect energy bills but fall outside of the Levy Control Framework,”
in the way I have illustrated. It said that that report should contain:
“Future plans, and comparisons of agreed budgets and final spend (outturn) for each funding stream.”
It should have:
“Easily identifiable “costs per customer” for each scheme on a consistent basis…including the impact that government decisions have upon requirements over time.”
and should contain:
“Measurable outcomes achieved through spending, including as a minimum the progress made against carbon targets and…other specified objectives of the schemes, and the impacts on consumers.”
That should certainly include
“an appraisal of the relationship of the LCF to its overall policy targets.”
I heartily endorse those recommendations, because at the very least they will bring the rationale and its relationship to policy objectives set elsewhere in Government under the purview of this House, so that that can be properly appraised. That, and the value for money or otherwise achieved by the process, can be properly appraised and assessed by this House, both at estimate time and at outturn time.
I would go further and reflect on the last line of the Select Committee recommendation. It is clearly deeply unsatisfactory that some levies are in a control framework, some are outside and some have, for purposes of expediency, been placed into general taxation. There should be consistent treatment for all. If we are not to go to a system that, ultimately, is better all round, but which I know causes problems with our odd British method of accounting for public expenditure that is at odds with how most other European countries do it—namely, by raising taxes openly and allocating support openly on the basis of what has been raised—then at least levies across the board should be treated in the same way. After all, they all end up in the same place—on the customer’s bill—and the overall positive effect of the levies, which in the longer term are certainly likely to be beneficial to those bills, can be properly appraised and prioritised.
As matters stand, we are essentially presenting a series of obscurely worked out and obscurely justified schemes as, somehow, a major and coherent policy driver. They most certainly are not. Fundamentally, the levy mechanisms should relate to the policy goals they are supposed to underwrite. What are the best value and most efficient mechanisms that will take us where we want to go on policies, once they have been decided? As it stands, the levy control framework is a very long way from doing that.
Sarah Newton (Truro and Falmouth) (Con)
I am sure we can all agree that delivering an energy policy that guarantees security of supply at prices businesses and people can afford is an essential and challenging task, especially after years of procrastination under the previous Government. This Government’s energy policy, based on a mixture of generating capabilities, is vital to our national security. The more energy we can produce on our own shores the better. The current situation unfolding in Ukraine is very worrying in many ways, but it is a timely reminder of the risks of relying on imported gas.
The Government are right to back renewable energy. It is particularly important to look at marine renewable and geothermal. As a Member of Parliament representing the south-west of England, hon. Members would expect me to say that. I was absolutely delighted when the Government set up the South West Marine Energy Park. I can perhaps give the hon. Member for Southampton, Test (Dr Whitehead) some of the evidence he was asking for, on the positive impact of the Government’s policies on renewable energy, from my experience in my constituency.
As a result of the announcement before Christmas of the strike prices for renewable energy, we have seen a huge increase in interest from overseas investors into marine renewable energy in my constituency. We are the home of the Falmouth bay test site, the FaBTest site, which is a very innovative partnership between the university of Exeter, the Falmouth Harbour commissioners and local businesses. It is an excellent site to pilot and test marine renewables which enables developers to understand how much energy can be created and the economics of it, which can then be scaled up to fully deployed devices on the wave hub. We have seen investment already, from Scandinavian countries, to build new devices that are currently being deployed, with a great pipeline to come. It is attracting not only investment but a great deal of new, high-quality engineering jobs to my constituency, all of which is to be welcomed.
Dr Whitehead
I underline the hon. Lady’s point that wave, tidal and other new forms of energy are beginning to secure a lot of investment, and invite her to attend the all-party group on renewable and sustainable energy meeting tomorrow on precisely that topic. We would be delighted to see her there.
Sarah Newton
I welcome any opportunity to draw attention to the fantastic and innovative work of companies in my constituency to create wealth, prosperity and new jobs, so if I can find time in my diary I will certainly come along.
I have seen evidence of the substantial impact of the new strike prices for renewable energy in the short period since they have been announced. Among all this good news, however, there are a few issues I would like to draw to the attention of the Minister.
My hon. Friend the Member for Southport (John Pugh), who is no longer in his place, made some very good points on the impact of the changes to ECO announced in the autumn statement. The reduction of people’s energy bills by about £30 to £35, as a result of those changes, has been welcomed by households across my constituency and, I am sure, across all hon. Members’ constituencies. However, some of the measures—particularly the reduction in the carbon emissions target for hard-to-treat homes by a third and the extension of measures to include cheaper options such as loft and cavity wall insulation—have had an impact on off-grid customers living in fuel poverty in my constituency, and have made the introduction of soluble insulation to low-income households virtually impossible.
Why is that important? The changes are having a disproportionate effect on constituencies in rural areas such as mine, where 35% of homes have solid walls compared with 22% nationally, and 48% of households are living off the gas grid compared with just under 15% across the country. As we all know—we have debated it many times in this House—people living off the gas grid pay much higher energy bills than those who are on the grid. Under the Hills definition of fuel poverty, that affects about 10% of households in my constituency, and that figure will be replicated across other rural areas. The Minister has taken great care to listen to MPs representing areas such as mine, and has taken real steps to try to tackle fuel poverty in off-grid households. Will he consider taking two further steps that could have an important impact?
The Minister created the off-grid ministerial round table, which is already proving to be a very valuable body that has made improvements for the group of people concerned. At the next meeting in May, I would very much like him to consider evidence from members of that round table, such as Community Energy Plus in my constituency, on the impact of the ECO changes on its ability to tackle fuel poverty in off-grid households. There might be some very simple tweaks, without extra cost, that could be made to the programme to enable us to help people who are particularly hard hit by the changes.
Secondly, will the Minister consider inviting the head of Public Health England to join the round table? Public Health England has rightly identified the reduction of fuel poverty as an essential health outcome. As we all know, living in cold homes exacerbates existing health conditions. It can often lead to unplanned emergency admissions to hospital and lead to a delay in people going back to their homes, because of the detrimental impact of allowing them to move back home. We live with the blight of excess winter deaths. The national health service has ring-fenced budgets, as do public health bodies and local authorities, and I think that they have an important role to play in driving down fuel poverty. Community Energy Plus in my constituency has been working with health officials and with me to develop an evidence base and a toolkit that will enable public health commissioners to fund insulation and other measures that would allow people to live in warmer homes. It would be excellent if work of that kind could be shared at the round table, and if Public Health England took up the challenge to provide an evidence base that would enable people working on the energy company obligation and on improving the energy efficiency of homes to work alongside health officials around the country in driving down fuel poverty.
I welcome the Government’s approach to energy policy and to tackling fuel poverty. I hope that the Minister will consider the simple steps that I have described, because I think that they could make a positive difference to the health and well-being of my constituents and others throughout the country.
Mr Mike Weir (Angus) (SNP)
We have many debates on the cost of energy to consumers, because the issue is vitally important, especially at this difficult time. The so-called green levies are often identified in the press, and sometimes in the House, as the cause of rising energy bills, but we cannot escape the fact that they are there for a reason. Their purpose is to provide our energy infrastructure for the future, and to ensure that money is invested to promote renewables and take carbon out of the energy system. Only in that way can we reduce energy bills and ensure that they stay low.
Last week the Prime Minister reaffirmed his view that man-made climate change is the most serious problem that affects us all, and it was good to hear that. Let us hope that this time he really means what he says, and will not move on as soon as he has hugged the next husky.
There are still people in the House of Commons, in the other place and outside who deny the reality of climate change in the face of mounting scientific evidence and, indeed, the evidence of our own eyes. The impact of climate change is variable, but it is also undoubtedly dramatic and dangerous. We cannot point to one weather event and say that it is a direct result of climate change, but we can see the pattern that is developing, and acknowledge that our climate is changing. Most of us agree on those points, but if we are to challenge the problem, we must obtain the money and take the measures that are necessary.
We must be brutally honest: if we leave the matter purely to the market, it is highly unlikely that there will be investment in a green economy and carbon-free energy. In the current market conditions, the cheapest form of energy is probably coal. Indeed, more coal is being burned for energy than has been the case for quite some time. However, we also face increasing energy demands, and the combination of the two could spell disaster for our climate. We need only think of the massive smog cloud that engulfed Beijing last week, when even indoors the pollution levels were above World Health Organisation safety levels. To be fair, the Chinese are now coming round to investing in greener energy in order to tackle their problems, but that remains a warning of what we could face if we do not act to tackle our problems. We have done it before: city smogs here became a thing of the past because of regulation, in particular the introduction of the Clean Air Acts.
Totally free markets will not take us where we need to go, so the Government must continue their efforts to ensure that there is real action on tackling climate change and the greening of our energy system. An enormous amount of money is needed for that project, but it should not be seen purely as costs; it should also be seen as investment. As I said earlier to the hon. Member for South Suffolk (Mr Yeo), I was rather concerned about his description of offshore wind farms and the contracts for difference that were needed for them. Having sat through the debates on the Energy Bill and heard what was said about CfDs, I understood that they were variable so that an extra boost could be given to new, untried technologies that needed a lift in order to take off, and so that the subsidy given to established technologies could be reduced. That struck me as perfectly reasonable, because the huge cost of offshore energy will undoubtedly require that extra boost. I would caution against considering alternatives to it just because it is expensive; it has reduced the need for onshore energy.
As we heard from the hon. Member for Truro and Falmouth (Sarah Newton), renewables are making a great difference to local economies throughout the country. They are driving the development of many parts of the new economy. Renewable energy is now a significant part of Scotland’s economy: 11,695 people are in full-time employment in the industry, an increase of 5% over the last year, and the industry is confident that it will continue to expand and employ more people. The latest figures from the Department of Energy and Climate Change show that in 2012 renewables accounted for 40.3% of gross electricity consumption in Scotland—7.5% more than in 2011—and for nearly 30% of Scotland’s total, a record proportion.
In my constituency, there are plans for substantial offshore wind arrays that have the capacity not only to generate huge amounts of renewable energy, but to push investment opportunities and new jobs. However, that will happen only if the CfDs are there to make it happen. My area used to have huge engineering works that went in the dreadful recession of the 1980s, but engineering survived in niche businesses and we are now seeing a real revival in businesses associated with the oil and gas industry—which is vital to the north-east of Scotland and where businesses such as GE Oil and Gas in Montrose are expanding—and many more smaller firms that are part of the oil and gas supply chain and increasingly the renewable supply chain as well. That is where much of the future development will come from.
Apprenticeships are growing, giving real opportunities for youngsters in my area to get a good long-term career, and the skills are transferable into the new renewable industries, giving continuity and a real future in sustainable jobs.
There are problems in the way that electricity market reform has been introduced, however. There have been delays, which have caused concern about investment. Some of the proposed developments have not come to fruition because of the changes to EMR, particularly in respect of onshore wind farms. SSE pulled out of two protected developments.
Much of what has been done has been possible only because of the renewable obligation. I accept that has put some costs on our energy bills, but it has also allowed us to fund programmes that have led to greater efforts to insulate homes, reducing energy use and future bills for consumers.
The hon. Member for South Suffolk mentioned the effect of nuclear—when debating with the hon. Member for Brighton, Pavilion (Caroline Lucas), I think. I was interested in what he said about almost off-the-peg stations coming from China. I have some dubiety about the future of nuclear, it must be said, and my friend the hon. Member for Glasgow North West (John Robertson) and I have debated that on many occasions. The cost of Hinkley Point is of interest to me, and interests in the European Union seem to be looking slightly askance at that. It is worth noting that the cost of the subsidy to Hinkley Point alone is over four times the total cost of the renewables obligation across the whole of the UK during its first 10 years in operation. That puts into perspective the amount of money that is involved. It is also worth noting that I saw a story earlier this week that a plan for a similar design in Finland which is already vastly over-budget and way behind schedule has now been put back for several more years. We really have to wonder just what contribution nuclear will make to energy in the foreseeable future. It seems to me this contract is ruinously expensive and will impact adversely on energy bills throughout the country.
We have to ask whether energy bills are now too high, however. Unfortunately, I think that is true, but it cannot be laid at the door of the so-called green levies. Let us look at the breakdown of costs in our energy bills as set out in the Commons Library note “Components of an energy bill”. It sets out that environmental and social levies amount to between 8% and 10% of the typical domestic dual-fuel energy bill. That is the proportion before the changes announced by the Chancellor in the autumn statement, which, as has been said, removed the funding of the warm home discount from energy bills and should have reduced the proportion further.
Figures produced by the Department of Energy and Climate Change break things down further, and that leads to an estimate that only 2% of the average dual-fuel bill is due to the renewables obligation, which up until now is what has supported large-scale renewable generation, feed-in tariffs and small-scale renewables. That amounts to some £30 a year on the mythical average bill.
I do not deny that for hard-pressed families even such a sum is significant. However, it is not the main driver for increasing energy prices. That is the wholesale energy costs, which according to DECC’s own figures account for between 46% and 48% of the bill. These costs are susceptible to many outside forces, of course. Prices are currently rising quite sharply with the increasing tension in Ukraine as Russia is a major supplier of energy, and in particular of gas to Europe.
I was also interested in the point the hon. Member for Southampton, Test (Dr Whitehead) made about CfDs and gas prices. The idea behind that, as I understand it, was that we would have a definite price for gas. That rising cost is the main driver for energy bills so, in theory at least, if we have a set cost under CfDs for that gas, it should prevent the spikes we have seen in the past and give the consumer, as well as the company, some certainty about what they are going to pay, although nothing in this world is certain.
Bob Stewart (Beckenham) (Con)
I am just trying to get this clear. The hon. Gentleman mentions figures of about 8% to 10%, reducing to 2% for renewables, with 46% as the cost of the energy. Is the rest tax? What is the tax percentage in the average energy bill in the hon. Gentleman’s example?
Mr Weir
It is not my example; I refer the hon. Gentleman to the House of Commons Library note on this subject, which sets out clearly the various elements, as I do not have it with me today. Obviously, energy companies will make a profit, and part of the taxation on energy bills is 5% VAT. The point about the 8% and the 2% is that only 2% of the bill is directly relatable to the renewables obligation. The differences between the two are the social obligations—the insulation costs and the other costs for creating warmer homes and reducing future energy bills.
It will be interesting to see how these changes feed into energy costs. If, as is claimed, the major companies are operating a hedging strategy for gas that forces them to buy well in advance, there should be little immediate effect—I am referring to the current rise in prices because of what is happening in Crimea. But those who buy the bulk of their supplies on the spot market may well see an immediate impact. It will be interesting to see whether there is a turnaround in who has the higher energy prices as a result of that.
A further major element in bills is the network costs charged to energy suppliers, which, according to the note, make up 20% to 23% of the costs. I have spoken on that issue many times in this House, as well as on the unfairness of the costs, which discriminate against generators, particularly renewable energy generators in the north of Scotland compared with major generators in the south. The regulator, Ofgem, has been looking into this matter, in a seemingly endless investigation, Project TransmiT, which I understand has been put back yet again to a possible introduction in April of next year. There must be more action and a fairer system of transmission reduces the costs faced by renewable energy. That would have a positive impact on bills by reducing the cost to the consumer.
All that having been said, we do need to look at the balance between investment and the price paid by consumers. I support the idea that some of the costs that have been imposed upon consumers are taken off bills and put on general taxation, specifically those relating to providing energy efficiency and insulation measures. It is not often I agree with the Minister, but that was correct.
Mr Weir
The hon. Gentleman need not worry too much.
Under the green deal, many measures under the energy company obligation are left to the energy companies to set up and administer, but that is not working. I have raised concerns about aspects of the specific schemes, but the overriding fact is that there is now a complete lack of trust in the energy companies and having them approach people offering such schemes will not achieve the take-up we need. Suspicion alone will stop many people taking up what could be a good scheme. We should be made to examine how we deliver these things, because if we were to have a more focused scheme, we could do more, for example, in hard-to-heat homes in the areas mentioned by the hon. Member for Truro and Falmouth, by making sure that these specific issues are tackled.
I have raised other issues relating to the ECO, one of which may interest the hon. Lady, who, like me has many constituents who are off the gas grid: many energy companies will not have replacement boilers for off-gas-grid appliances. I have written to all the major companies to press them on the issue. I have raised it at ministerial round-table meetings—I am sure that the Minister is fed up with hearing about it—and in the House, but the situation remains. We really need action on such areas. We were told by Ministers that the ECO was technology-neutral, but that is clearly not so for off-grid consumers.
The Government’s usual mantra of energy efficiency and switching simply does not wash with those who are struggling to pay their bills. The savings on offer would barely scratch the surface of the problem. All too often, energy companies seem to be carrying out a follow-my-lead strategy on price rises. If someone switches when their company raises prices, they may just be delaying their own price rise until the next company makes its move. It is not surprising that cynicism has taken hold among the general public. We must make it clear to our constituents that there is no silver bullet to solve the problem of energy prices. Yes, we need to look closely at how the energy companies operate, which the hon. Member for Glasgow North West has talked about on many occasions. In fact, that is one of the things on which we agree.
We need transparency in the system to see not only how the companies make their money but the inequalities. In the Energy Act 2013, the Government sought to take powers to implement the Prime Minister’s promise to put everyone on the lowest tariff, but, as I have said many times, the Act does not seem to have that effect. What it does is to require the energy companies to facilitate the switch, but the offer to do that may well not be obvious to many people who receive a mass of paper through their doors from the energy companies. There must be a much more proactive effort to put people on to the lowest tariff. It also seems that, under this scheme, it is only the lowest tariff operated within the type of contract the person already has. As I have said before, that is fine if someone is on a direct debit tariff, but if they are on a prepayment meter, for example, they will still be stuck on a higher tariff, and there is little being done to help those people.
If we are to explain clearly what the costs of energy are and to do what we can to reduce energy bills, we need to ensure that everyone is on the lowest possible bill. We need to get away from the fact that companies can claim that bills are the result of green levies or other levies, when clearly that is not the case.
I have spoken a great deal about prepayment meters before, and I will not do so again any great length again. However, I will just say that the citizens advice bureau in Scotland cites the case of a single parent with two children. The mother currently has to lose £7 to arrears every time she puts £10 in the meter. The £3 remaining is entirely insufficient to heat her home. Such things cannot be allowed to continue if we are serious about bringing the public on board. They must understand that we are serious about not only ensuring that the infrastructure is in place and that we move towards green energy, but about doing what we can to reduce energy bills.
I have also spoken before about the fact that some people who have prepayment meters or who are in arrears often do not have bank accounts. The banks are not interested in the low-income customers. Indeed many of them have moved out of areas such as the rural parts of my constituency.
The hon. Member for Truro and Falmouth mentioned off-grid customers, so I will give another plug for my favourite campaign for earlier winter fuel allowances for elderly people who are off the gas grid. I am pleased to see that the Labour party has now adopted that as policy. I have been campaigning for it for some time, and I am glad to have its support for that policy. It is interesting to note that both major parties have supported that at one time or another. Strangely enough, they have done so when they have been in opposition, not in government—call me a cynic, but there we go. We will wait and see.
All too often when we debate energy, we focus on electricity consumers. We must look at the whole system, and I am glad that we have the opportunity to do so today. I think that I have spoken for long enough, and I will end by saying that this is a good opportunity to make the point that we should not just look at green levies. There is a reason we have this ongoing system: to decarbonise our energy and ensure that bills stay low in future.
Andrew Percy (Brigg and Goole) (Con)
It is a pleasure to follow the hon. Member for Angus (Mr Weir), particularly as he finished by talking about off-grid customers, and I wholly concur with his comments. I represent a number of off-grid communities, and all the problems highlighted by other hon. Members obviously affect my constituency.
We have had two debates in which fossil fuels have, perhaps for understandable reasons, come in for a bit of a bashing, but whenever we debate them, I like to remind the House that many thousands of my constituents work in the coal and gas and the offshore oil and gas industries. This is still an important sector of the economy, and they play a valuable role, whether by working at coal-fired power stations, at Kellingley or Hatfield pits in my constituency, or offshore.
Throughout this debate we have witnessed the flogging of a dead horse: the energy price freeze—an idea that has been roundly rubbished, including by the public. What would happen in such a situation is clear: prices would go up before a freeze, and they would go up again after a freeze. The public have not been conned on that one. Many of my constituents contacted me when that policy was announced, and they had figured it out for themselves; they needed no assistance from me or my party to do so.
It was interesting to hear about ECO. A good project is going on in my constituency, where funding from the Dragonby wind farm has been used to support ECO funding to put energy efficiency measures into the small community of Dragonby, not too far from Scunthorpe. I see my constituency neighbour, the hon. Member for Scunthorpe (Nic Dakin), here. The project is proving effective, and I will be on site next week, as the next phase of construction takes off .
I want to focus most of my comments—this will probably not surprise the Minister—on Eggborough power station, which is in the constituency of my neighbour, my hon. Friend the Member for Selby and Ainsty (Nigel Adams), but is a big employer in my constituency. I can see from my front room Drax and Eggborough power stations. If I go upstairs, I can see Ferrybridge power station. Powers stations are something that we live with locally and something that we love locally, not least because of the large number of local people employed in them.
Obviously, there is a massive black cloud over Eggborough, which is one of the UK’s largest coal power stations, producing between 2% and 4% of the UK’s capacity, depending on whose figures are believed. But whether the figure is 2% or 4%, given that Ofgem predicts an energy margin of as low as 2% by 2015, Eggborough is incredibly important to generation. Sadly, however, EU environmental regulations and the carbon floor price mean that Eggborough will be forced to convert to biomass or face closure. Indeed, I have been concerned about the carbon floor price from the beginning. That is why I voted against it, along with my constituency neighbour, my hon. Friend the Member for Cleethorpes (Martin Vickers) and, indeed, the hon. Member for Scunthorpe. As ever, north Lincolnshire has been united on this issue, because of the large number of important carbon-intensive industries on the south Humber bank.
Eggborough has been working on a £750 million conversion project that would have started on 6 January and been the UK’s largest infrastructure project in quarter 1 of this year. That investment would have secured 800 jobs, many of them in my constituency, and created even more jobs further down the supply chain. That is on hold. For the past couple of years, Eggborough and local MPs have had positive policy signals from the Department of Energy and Climate Change that conversion to biomass would be supported through the final investment decision enabling process. We are pleased as local Members of Parliament that Drax has been secured through that process, but all the signs were that a rapid conversion to biomass at Eggborough would be supported, not least to sustain that important generating capacity on the grid as well as to meet our renewable targets. This was a shovel-ready project, as I have said, with £750 million of inward foreign investment already in place. The final decision was dependent on the FID enabling process. Several drafts of the documentation were produced, and by the third and final draft something seems to have changed in the selection criteria. Just a few weeks before the final announcement applicants were informed of the change and, as a result, Eggborough was excluded.
Michael Fallon
May I make it absolutely clear to my hon. Friend, probably for the nth time, that the selection criteria were not changed? It was always clear, in each of the updates on the FID enabling process from the beginning of last year onwards, that the budget might have to be constrained if there were more applications for biomass conversion than the budget could accommodate. I am delighted that we could accommodate, through immediate selection, the biomass conversion plant to which he has referred at Drax.
Andrew Percy
I thank the Minister for that, but it is not a situation or an explanation that Eggborough, others involved in the debate or I accept. Yes, I grant it to the Minister that it was clear in the initial documentation that there were a range of selection criteria. That was mentioned in passing in the first draft. By the third and final draft it appears to have become an overriding consideration and criterion. That is what we believe has changed. If that was not the case, why were positive messages given to Eggborough throughout the process? It would have been clear at the beginning that Drax and Eggborough could not both have been funded, given the scale and size of the Drax conversion and the budget. Later, the range of technologies seems to have become the overriding criterion, which is why other local Members of Parliament and I have sought to clarify what happened and are concerned for our constituents who work in this important power station.
As for the impact of the change, Members of the other place and I have recently tabled parliamentary questions to demonstrate that the Government have made no assessment of the impact of the change in policy, nor of the impact on bills. When I intervened on my hon. Friend the Member for South Suffolk (Mr Yeo), my hon. Friend the Member for Suffolk Coastal (Dr Coffey) shouted at me that it was all about how cost-effective this was. Well, we do not know the cost of losing this generating capacity. Eggborough has announced that it will be forced to close unit 2, which provides about 1% of generating capacity, in September this year. According to the most recent information available, the management at Eggborough believe that the plant will no longer supply energy to the grid at all beyond 2015.
There is a crunch coming in 2015, perhaps as low as 2% of capacity, and here we are, about to take off 2% to 4% of generating capacity. The appropriate notices have been issued to National Grid, Ofgem and DECC. The Government may not have made an assessment of the impact on bills, but others have. The loss of that capacity could result in a £38 rise in consumer electricity prices, with £25 due to capacity crunch forcing up the wholesale price, and an estimated £13 of additional cost to decarbonise using technologies that are more costly than biomass conversion.
As I said in the meeting with the Minister and one of his officials, we potentially face a situation in which 800 people who are currently gainfully employed will be sitting at home, having been fired, paying increased bills for a form of generation that is 50% more expensive than the form that they were sacked from generating. To me, and to my constituents, that seems completely and utterly barking mad. It must not be allowed to happen.
We know full well that the process was changed—recalibrated perhaps—over a range of technologies, which seems to have become the overriding factor. There are technologies, largely offshore wind, that have come out ahead of Eggborough, even though they have no finance behind them and do not have planning permission in place, compared with a shovel-ready project that was ready to go.
The figure of £38 for the addition to bills might be disputed, but we have received no answers to our parliamentary questions that show what the impact would be. Perhaps it is worth delving into that in more detail. The £38 is based on the fact that annual wholesale consumption in the UK energy market is 360 TWh. If wholesale prices rise by 10% due to the supply crunch, that would add £5 per megawatt to the wholesale market, which equates to about £1.8 billion per annum. About a third of the market is for domestic households, so that is £600 million between 24 million domestic customers, which works out at £25 on domestic bills. Filling the 4% capacity gap, or maybe the 2%—the figures are disputed—with the more costly renewable technology will result in an additional £13, based on a total cost of £3.4 billion over the life of the project.
It is unfortunate that we find ourselves in this position. I implore the Minister and the Government to listen to our pleas on the matter. Eggborough is a major employer. The conversion project would secure 800 jobs, and potentially thousands more. The money is there, it is shovel-ready and the investment is in place. The fact that the project is losing out to others that do not even have finance or planning permission in place simply cannot be right. In fairness to the Department, I understand the desire to have a range of technologies, but we argue that that is what the contracts for difference regime is for. The projects that would replace Eggborough would not be on stream until 2019-20. There is another regime for them, but there is not for Eggborough. The FID enabling regime is it for Eggborough: it is the end. We really need action on this, perhaps through the Secretary of State using his reserve powers. If the regime is not right, as the Minister has consistently told us, let us look at the Secretary of State’s reserve powers, particularly those relating to the impact on generating capacity.
If this project does not go ahead, we have to be clear that we will be replacing it with a much more expensive form of technology. I support the development of our offshore wind sector through a different regime, and locally we have all been united—the Opposition Whip, the hon. Member for Scunthorpe, is nodding in agreement—in wanting to see the Humber develop as an offshore wind centre. We believe that we can do both. We should aim to do both, not only because of the number of jobs at stake, but because of the implications for consumers and how much they would be hit in the pocket. I hope that the Minister will listen again to our pleas on this subject. It is important not only locally, but from a national perspective.
Lilian Greenwood (Nottingham South) (Lab)
Over the past three months, I have repeatedly raised my concerns about the impact that the Government’s panicked changes to the energy company obligation are having in my constituency, and I make no apology for doing so again today. As we have already heard, the energy company obligation is not covered by the levy control framework, even though the framework’s stated purpose is to cap the cost of levy-funded schemes and ensure that the Department of Energy and Climate Change achieves its fuel poverty, energy and climate change goals in a way consistent with economic recovery and minimising the impact on consumer bills.
The Government claim to be making changes to the ECO precisely because they are concerned about the impact on energy bills. My worry is that they seem to be ignoring the devastating effect of the changes to the literally thousands of my constituents who live in cold, solid-wall homes, which are expensive to heat. The hon. Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy) and for Angus (Mr Weir) spoke about the impact on their constituents in off-grid and rural locations. I want to talk about solid-wall properties in urban settings.
Nottingham’s Greener HousiNG scheme is a partnership between our social landlord Nottingham City Homes, experienced insulation contractor VolkerLaser, local energy efficiency charity Nottingham Energy Partnership, and local people. The scheme offered up to 4,500 households in Clifton in my constituency the opportunity to save hundreds of pounds a year on their energy bills, enjoy warmer homes and contribute to national targets for cutting carbon emissions.
The scheme offered external wall insulation at an affordable, fixed price, with residents paying a contribution of between £1,000 and £1,300. The remainder of the cost was provided by funding from British Gas under its energy company obligation. Our ECO-funded scheme was to be delivered in two phases, commencing in September last year and finishing in March 2015. It was planned that the insulation works would be rolled out street by street across the Clifton housing estate to council properties and privately owned homes alike.
The launch of phase 1 of the scheme in the north of Clifton in early September was received with real enthusiasm, and within weeks hundreds of residents had signed up. Clifton is a close-knit community. Built on green fields by the council in the early 1950s to address post-war Nottingham’s need for homes, the estate is a popular place to live and raise a family. Three quarters of the homes are now privately owned, as long-term residents have exercised their right to buy. Many of the original residents still live there, and often their children and grandchildren are nearby, so word about the scheme soon got round.
When residents saw how good the insulation looked and heard about the difference it made to both bills and comfort, they started to get in touch from across the whole of the estate even though the publicity had only gone out in the phase 1 area. In total, there were about 330 council homes and a potential 1,100 private homes in phase 1 and a further 900 council homes and about 2,500 private homes in phase 2. By the end of November, more than 90% of council tenants had agreed to have the work done and there was 65% take-up among the private sector properties, with 729 private residents or landlords having signed up and paid their contribution towards getting the work done. A further 352 private owners had signed up and paid from the phase 2 area of Clifton South. Dozens of the owner-occupiers had also spent thousands of pounds installing new double-glazed windows or other preparatory work to maximise the benefits to their homes once the insulation was applied. In many cases, people had spent their savings or borrowed money to fund that work.
On 1 December, I was in Clifton chatting to residents on Farnborough road and Sturgeon avenue, some of the first streets where work had begun as part of the scheme. The feedback was incredible: people told me that their homes were warm for the first time ever. They were saving money. Many people on the estate are on low incomes so use prepayment cards to manage their gas and electricity bills. They immediately saw a difference in their household budgets and were really proud of the improved appearance of their homes and the neighbourhood. People waiting for the work told me how much they were looking forward to it starting. Some even told me what colour they had chosen for the render.
It was all going so well, but the very next day the Energy Secretary came to the House and announced a panicked change to the energy company obligation—a levy that was introduced by his Government and which underpinned Clifton’s Greener HousiNG scheme. He was under pressure: the big energy companies, in turn, were announcing price rises of up to 10%. He had no policy to counter Labour’s popular promise to freeze prices until 2017 and reform the energy sector. However, rather than take on the big six and tackle their overcharging, he gave in to them, did exactly what they wanted and announced that he was going to cut the ECO—a Government levy that makes up about 3.5% of the typical annual energy bill.
It seemed obvious to me that that change would put my constituents’ insulation scheme at risk. I voiced my fears and asked the Energy Secretary to guarantee to protect our scheme and its fuel-poor residents in hard-to-treat homes. He told me that as a Nottingham lad who had visited our city to see some of its successful insulation work, he agreed with me and went on to say:
“We must ensure that communities around the country are benefiting”.—[Official Report, 2 December 2013; Vol. 571, c. 633.]
He also said that he was happy to look at the case. Following that reassuring reply, I wrote to him reiterating my concerns. I am sorry to say that I have yet to receive a reply to my letter.
At the autumn statement on 5 December I tried again. The Chancellor dismissed the concerns of Clifton residents, including my 85-year-old constituent Ennis Peck, whose home may no longer be insulated under the scheme, telling me that energy bills would come down by £50. Of course, energy bills went up in January by an average of £60 and Ennis and many other constituents now stand to lose out both on warmer homes and on savings of £300 to £400 a year on their bills.
Our worst fears were confirmed on 8 January when British Gas gave 90 days’ notice that it was terminating its involvement in the Greener HousiNG scheme. It said:
“In light of the Government’s proposed changes to the ECO, it was necessary for us to review our current ECO contracts. These changes mean we can no longer fund some projects and unfortunately this is the case with our planned programme with VolkerLaser and Nottingham City Homes.”
Therefore, as a direct result of the Energy Secretary’s policy shift, thousands of my constituents stand to lose out.
Partners in the scheme are doing all they can to complete as much of the planned insulation work as possible for those who had signed up and paid their contribution, but the 9 April deadline is fast approaching. Although we hope that more than 1,000 homes in Clifton will be better insulated next winter, a further 3,000 Clifton families will be left in the cold. More than 20,000 households in solid-wall homes across Lenton Abbey, Wollaton Park, Aspley and other parts of Nottingham, who had hoped to benefit from the roll-out of the levy-funded Greener HousiNG scheme to their areas, are in a similar position.
Hundreds of local people employed to carry out the assessments and organise and install the insulation find that their jobs are gone or at risk, including eight new apprentices. A further 12 local unemployed young people who were due to start year-long apprenticeships leading to national vocational qualifications have been left in limbo. Their opportunity for green jobs in what should be a growth industry has been snatched away.
I want to the give the last word about the impact of the Government’s green levy changes to my Clifton constituents. Their stories convey more powerfully than I ever could why Ministers have dealt with changes to levies on energy bills in the wrong way. Mr and Mrs Rennie of Bainton grove told me:
“We signed up for the insulation last November. Due to lack of funds we chose the loan from the Credit Union to fund it. As advised by Nottingham Energy Partnership we undertook the replacement of our drainage pipes/guttering/soffits and fascias. We also had our rotten back door removed and a window put in place. We had the work done in December because we were told it would be January when the insulation work would start. The builder left the adequate gap in the fascia boards so the insulation would just fit in. The replacement wall beneath the new window was not rendered because it would all be covered by the insulation. We spent the last of our savings having this work done.
The main reason for us having the insulation is the damp which is especially bad in the front facing rooms of our house…We have water running down our walls, black mould growing, the paint bubbles off the walls. As well as this looking cosmetically bad it is not good for my wife’s health. Marie has multiple sclerosis and it’s important to keep warm and comfortable due to temperature sensitivity.
We are deeply upset and angry about this situation. As the weeks go by we are becoming more and more worried which is adversely affecting my wife’s health. She does not need this added stress!
If we do not get the insulation we have spent two thousand pounds we really could have done without…What do we do now? Please help us”.
The importance of the scheme for those with health problems is a recurring theme in letters from my constituents of all ages, but older and disabled residents are of course particularly susceptible to the cold. A constituent on Swansdowne drive wrote that
“we were hoping for a lot cheaper fuel bills and to be a lot warmer as these houses are made of concrete which holds the cold. We get a lot of condensation which is bad for our health. My husband is a poorly man and my son suffers from asthma and the damp doesn’t help.”
Arthur from Bainton grove, who is one of Clifton’s older residents, was looking forward to affordable warmth. One line in his letter—
“I’m a 76 year old man sitting with one bar on the fire”—
paints a vivid picture. Another of my constituents, who lives on Dovenby road, spends a lot of time in the house. She is 80 years old and lives on her own. She feels especially let down because all her bills are from British Gas, and she signed up at the launch meeting on the very first day of the scheme. Cheryl wrote on behalf of her mum, who lives on Wrenthorpe vale:
“Mum is 77 years old and has early stage Alzheimer’s. Being in most of the day she has the heating on most of the time. It has only recently been installed. Her bills have gone up phenomenally as the house, being concrete, is very cold. The difference to her heating bills and quality of life will be substantial. It’s all very disappointing.”
Of course, not just pensioners are affected, although they are particularly vulnerable to the cold and often face the most severe fuel poverty, which the levies are meant to help with. There are also problems for low-income families, such as my constituent on Colleymoor Leys lane who says:
“I am trying everything to heat my daughter’s bedroom. I have lined it with thermal wallpaper but it is still like an icebox. I cannot afford to keep the heating on and have to add layers to her and put a hot water bottle in with her and she’s only 3 years old. This is what I have been waiting for ever since I purchased this house in 2006. To have this stopped would be catastrophic. Please let my house have this. It will also help with my suspected rheumatoid arthritis. My daughter and I need this insulation urgently as it adds to her eczema due to the cold”.
The health of her children is also a concern for Carol who lives on Farnborough road. She says:
“I have 3 children living in my house. Myself and my 7 year old have asthma. The walls are damp and black and it smells in the rooms. I am spending money on heating up the house rather than buying food for my children. I am a single parent working and paying bills to get a loan to pay for this insulation. It’s killing me to have to get a loan, but for my health and my kids’ health I have to get it done. We’re living in 2014—things should be better now.”
Carol is right: it should be better than this. That is why Labour is prepared to protect consumers from excessive bills, reset the market and continue to invest in energy efficiency and measures to help those facing fuel poverty and the ever-rising cost of living.
The need for tough action on prices is very clear from the letter I received from a constituent who says:
“I was looking forward to being able to have more control of my heating costs in these trying financial times. As I approach retirement on a fixed income the spiralling energy bills are a constant concern”.
My constituent from Foxearth avenue speaks for many people when he says:
“British Gas should have been made to honour their commitment, they make enough profit”.
Three months on from the Energy Secretary’s announcement, we still have not had the consultation on his energy company obligation changes, and we have not seen any impact assessment. I know the impact that his changes are having in my constituency right now, and my constituents know what impact they are having. Action to tackle rising energy bills is vital, but the changes to green levies announced last year are not the way to go about it.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
I thank the hon. Member for South Suffolk (Mr Yeo) and his Committee for their report on parliamentary oversight of the levy control framework. It has been an important underpinning to this debate, and many of the issues it raises have been mentioned by Committee members and other hon. Members who have spoken. I hope that the Minister, if I give him enough time, can respond to those points before we conclude the debate. I am sure that he has paid attention to, and will want to respond to, the concerns raised by those who have spoken, and to the reflections of wider concerns expressed in recent months by several bodies and individuals, notably the National Audit Office. We have heard a refrain from some Members about the costs of so-called green levies. However, this has been a constructive debate and the more misleading aspects have not taken up much of our discussion.
A number of Members, including my hon. Friend the Member for Glasgow North West (John Robertson) at the start of the debate, spoke about the scale of the levies as a proportion of consumers’ energy bills. He said that more than half the cost of the levies goes to support pensioners and people on low incomes who need help to pay their energy bills.
My hon. Friend the Member for Nottingham South (Lilian Greenwood) has just described powerfully the immediate impact that the changes to the ECO scheme have had. She rightly said that we are yet to see an impact assessment from the Government. I wonder whether the Minister will enlighten us on when we will see the impact assessment of those changes, which were announced three months ago.
It is important to reiterate that that help focuses on improving energy efficiency, which can help to reduce consumption and minimise increases in bills. I would expect most hon. Members, whether they are here this evening or not, to sign up to that as a common-sense proposition. The housing stock in the UK is among the most energy inefficient. Much of the stock in the private rented sector, which has many of the poorest tenants, is the most inefficient of all. Improving efficiency is a sensible step, to help keep people warm and to ensure that we are not just heating the streets outside the windows and the air above the roofs. It also has the positive economic benefits of creating jobs and controlling the amount of generating capacity we need to invest in, which I hope will be well recognised.
Members will be aware that levies have been applied to bills for various schemes. When the Government introduced the ECO scheme, the enthusiastic Minister of State at the Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker) proclaimed it to be “transformational”. So transformational has it been that it has led to schemes, such as the one in Nottingham that we have just heard about, being abandoned. He has presented the cutting and spreading over time of ECO as though it is extending the scheme. That feat of verbal dexterity has not been surpassed in this debate so far.
The number of contributions from hon. Members from all parts of the House this evening has demonstrated the level of interest in and concern about these issues. My hon. Friend the Member for Glasgow North West, who has a strong, consistent and unrivalled record of standing up for the fuel-poor in his constituency, in Scotland and across the UK, set out powerfully the way in which some people have used the debate over levies as a diversionary tactic to distract attention away from the need for reform in the retail and wholesale energy markets. I think that I heard him say that he is now convinced by the case for reform that is being set out from the Opposition Front Bench. I take that as a gain. I am sure that he will support our proposals in future.
The hon. Member for Southport (John Pugh) highlighted concerns about the delivery of aspects of the ECO scheme, which was introduced by this Government, and the impact on his constituents and businesses that are involved in replacing boilers.
My hon. Friend the Member for Southampton, Test (Dr Whitehead), who is a distinguished and long-serving member of the Energy and Climate Change Committee, underlined in his usual thorough and comprehensive way which levies are included and are not included in the levy control framework. I got the sense that he anticipates with keenness the forthcoming secondary legislation on the Energy Act 2013, which I hope we will see shortly. Indeed, I think he anticipates it almost as keenly as I do.
The hon. Member for Truro and Falmouth (Sarah Newton) highlighted the importance of energy security and a balanced energy mix, given the impact of geopolitical events on the price of imported energy. She also referred to the potential of wave and tidal energy in her constituency and throughout the south-west more widely. Last week, I was fortunate to be in Belfast to speak at RenewableUK’s wave and tidal energy conference and had the chance to meet and to speak to representatives of companies, universities and other bodies in her area. The local enterprise partnerships in the area have joined up to create almost a regional development agency, after the RDAs were abolished, to ensure that they get the best possible benefit from that huge energy potential.
Sarah Newton
The Government created the South West Marine Energy Park. The hon. Gentleman is right to say that the LEPs joined together to enable them to benefit from that very good Government initiative.
Tom Greatrex
I was very impressed by what I saw and heard from people at the conference in Belfast last week. The hon. Lady referred to the impact of the announcement on strike prices in the marine energy and wave and tidal sector. I am sure she is also aware that we are talking about nascent technologies, which could be a significant contributor in the 2020s. I hope she gets to the event that my hon. Friend the Member for Southampton, Test reminded her is happening tomorrow, because I am sure that others will be there who will be able to reiterate these points. It is also important, particularly for those technologies, that there is a signal beyond 2020.
The Minister seemed puzzled by the suggestion that an indication of the size of levy control framework beyond 2020 might be appropriate, but a 2030 de- carbonisation target would be appropriate. I am sure I need not remind the hon. Lady that that is supported by all parties in the House, other than hers.
Jim Shannon (Strangford) (DUP)
When the hon. Gentleman was in Belfast last week, did he have an opportunity to speak to anyone from the Northern Ireland Assembly about the role of the regulator in Northern Ireland who can have some control over energy prices in Northern Ireland? If he had such a discussion, has he been able to raise it with the Minister, and do the Opposition intend to give more power to the regulator so that prices for consumers can be reduced?
Tom Greatrex
I thank the hon. Gentleman for his intervention. I did not speak to any Assembly Members last week because I was there on Thursday when, as the hon. Gentleman will be aware, there were significant issues of immediate and pressing concern to Assembly Members and many others. Some Assembly Members who were due to be at the conference were unable to attend, for understandable reasons. However, I had the opportunity to talk to some players in the Northern Irish and Irish markets about the role of the regulators there, and I will send the hon. Gentleman a copy of our Green Paper so that he can see our proposals for a reformed and refocused regulator to ensure that there is a better balance in our regulatory regime.
The hon. Member for Southport said he had learned not to talk about estimates during estimates day debates. We had a master-class in that from the hon. Member for Angus (Mr Weir), who made a wide-ranging contribution on a range of energy policy issues, many of which were common ground to many of us, and we were able to agree with much of what he said. He touched on the impact on jobs and growth in his constituency from the renewables sector. As a fellow Scottish Member, I share his interest. Some engineering companies in my constituency are part of that supply chain, and I hope and anticipate that it will continue. The tone of this debate has been positive and thoughtful. The opportunity for my constituency and his to benefit most from opportunities in the renewables sector is underpinned by being part of the UK and the single energy market which we currently enjoy as a result.
The hon. Member for Brigg and Goole (Andrew Percy) touched on a number of issues, but most extensively those affecting Eggborough power station and his constituents. He may recall that I raised this issue at business questions just prior to Christmas, when I asked about the rumours that were circulating at that point. I think that the announcement in which the decision was confirmed was made on the day after the House went into recess. There are significant concerns about the way in which the FID-enabling process has progressed to date. I anticipate that further questions will be asked of the Government in relation not only to Eggborough but to other projects that slipped off the list and that had anticipated a different answer from the one that they got.
We are well aware of the proportion of the bills that consumers receive that is accounted for by levies within and outside the levy control framework: it is about 9% of the average bill, with the total amount added to bills being less than a third of the increase in bills since May 2010. It therefore does not stack up to attribute the majority of the increase in bills to levies, or green levies specifically. As the Minister is now well aware, 60% of the levies on bills have been introduced by the current Government since May 2010. I suspect that when he described the carbon price floor as an “absurd” waste of money and “assisted suicide”, he was not necessarily aware that it was a tax that had been introduced by his own Government. I am not sure whether those comments reflect his current view.
Apparently, as the Chancellor considers the Budget in the weeks ahead, he might reflect on the significant escalation of the additional element in bills. I join the Chair of the Select Committee and others who rightly noted that we in Parliament should be vigilant about the impact of levies on the bills of consumers and businesses. The oversight of a number of the arrangements relating to the levy control framework—which, as my hon. Friend the Member for Southampton, Test made clear, does not include all levies on bills—was a theme of several of our discussions in the Committee on the Energy Bill last year.
I ask the Minister to respond to some specific points. Will the capacity mechanism, and the demand-side options that will be considered as part of it, fall within the scope of the LCF in future? The Select Committee recommended that there should be a single annual report covering all DECC-funded schemes—those within and outside the levy control framework—to measure outcomes through spending, albeit that these moneys do not come from the consolidated fund. Have the Government looked into how that might be achieved, and does the Minister think it is a worthwhile exercise?
In its report on the operation of the LCF published in late November, the National Audit Office highlighted the failure of the joint Treasury and departmental governance board to link spending and outcomes in its deliberations. What assurance can the Minister provide that that will be rectified? The NAO also drew attention to schemes not covered by the framework and recommended that the Department should not only explain how it will control aggregate costs of consumer-funded schemes but elucidate on whether, together, those schemes are delivering what they are intended to deliver. What action do the Government intend to take in response to that?
The NAO returned to an issue that has been a matter of concern to many of us in recent months in relation to the allocation of contracts for difference within the LCF and the risk of breaching the cap if the wholesale price falls—another point made by the Chair of the Committee.
The NAO recommended that the Department and the Treasury should supplement published reporting on individual framework schemes by reporting routinely on levy-funded schemes. Has the Minister given that any consideration? The LCF is important, but it is also important that there is sufficient published information and accountability and that it should be taken with the same degree of seriousness with which this House views public spending from the consolidated fund. As the Chair of the Committee said, taxpayers and consumers are mostly the same people, and the impact falls on the same shoulders. The balance between the impact of the levies on consumers and the point of those levies has to be very carefully struck. The discussion about that balance can be better informed by a much stronger level of analysis being provided to this House for scrutiny.
I hope that the Minister will reflect on these important points to ensure that there is better, more thorough and more comprehensive parliamentary oversight of the levy control framework for the future, so that we can all be confident that it is delivering the policies that the Government are expecting it to deliver.
The Minister of State, Department of Energy and Climate Change (Michael Fallon)
We have had a good debate, and I thank the Energy and Climate Change Committee and the National Audit Office for their recent reports on the levy control framework. I have written today to the Chair of the Committee, my hon. Friend the Member for South Suffolk (Mr Yeo), in response to some of the specific questions raised in the Committee’s letter sent last Tuesday. I hope that all members of the Committee have received a copy of that response.
Before turning to some of the major questions raised about the estimates, not least by the hon. Member for Rutherglen and Hamilton West (Tom Greatrex), let me address some of the specific points made in the debate. My hon. Friend the Chair of the Committee asked about the levy control framework and whether the list of technologies was exhaustive. We have set out all the technologies that we consider should be supported at the moment up to 2018-19, although of course we cannot bind our successor—if there is one—and I do not rule out extending that support. He will see that we have put a support price for wave technology, tidal power and so on. He also asked for more details of the capacity mechanism. We are consulting on the exact operation of the capacity market and the auction, and he will receive more details about that shortly.
My hon. Friend asked about the position of carbon capture and storage in the levy control framework. The capital costs of carbon capture and storage—the £1 billion that the Government are committing to the two projects for which we have signed initial feed contracts—are not in the levy control framework because they are, of course, taxpayer funded. However, the operating costs will be covered through the framework. Finally, he asked me to speculate on the future movement of gas prices. There, I am afraid I cannot help him with any particular update or assumptions, and neither do I think that I would best respond to the debate by doing so.
The hon. Member for Glasgow North West (John Robertson) made important points about energy efficiency, and I do not think there is too much difference between the two sides of the House about the importance of those measures. He went on to attack the performance—indeed, the existence—of the big six. I did not hear him admit, however, that the big six were a creation of the previous Government, who seem to have started with 14 retail companies and ended up with the big six. He would have been on stronger ground if he had acknowledged the failure of the previous Government to do anything about increased concentration in the sector.
My hon. Friend the Member for Southport (John Pugh) made important points about the returns enjoyed by energy companies and the ECO, but his most important point was about the fuel poverty target and how, when we get the new target rolling, we should monitor it properly, account for its performance, and be sure to explain to those—including all the voluntary organisations that worked with us on the construction of a better focused target—how we are meeting it.
The hon. Member for Southampton, Test (Dr Whitehead) made a number of points about the estimates, which I will come to when I reply to the meat of the debate. He drew the House’s attention to the important inter-relationship between the carbon floor price and the levy control framework. He is right to remind us that any changes made to the carbon floor price will, of course, have implications for the levy control framework.
My hon. Friend the Member for Truro and Falmouth (Sarah Newton) referred to the strike prices for some of the newer technologies. I am glad that we were able to confirm those strike prices, which have been such a boost to renewable projects in her area. She went on to make some important points about our continuing work to improve the position of off-grid households. I certainly take her point that we perhaps ought to include some representation from Public Health England in our work. I will certainly reflect on that further, before I convene the next meeting of the ministerial round table in May.
The hon. Member for Angus (Mr Weir), in a lengthy speech, paid much attention to the extent of renewables support without confirming that more than a third of renewable support goes to Scotland, which has just 9% of the population. He would have been on stronger ground if he had referred to the extent of support that comes from outside Scotland; not just from England, but from taxpayers in Northern Ireland and in Wales, too. More than one third of all our support for renewables ends up in Scotland, which has just 9% of the population.
My hon. Friend the Member for Brigg and Goole (Andrew Percy) raised again the position of Eggborough. I do not think, because he champions the cause of Eggborough so well, that he fully appreciates that some 16 projects came forward under our intermediate regime. They all involve enormous taxpayer support, so it would not have been possible for taxpayers to support all 16 projects. We are taking nine projects forward on the basis—I have to correct him slightly—that all are ready to sign this month: all have finance in place this month. I am delighted to confirm that two are biomass conversions—Drax, right next door to him, and Lynemouth in Northumberland—so we are not neglecting the cause of biomass conversion. It is not right to say that a project not taken forward under the FID enabling process has, in the phrase I think was used the hon. Member for Rutherglen and Hamilton West, slipped off the list. We are not able to give taxpayer support to every single renewable project that came forward for the intermediate regime. Those not afforded under the regime will still, of course, have the option of applying under the existing renewables obligation or the forthcoming contract for difference.
The hon. Member for Nottingham South (Lilian Greenwood) raised one important point in particular on the Clifton scheme in her constituency, which, she suggested to the House—I have no reason to doubt her—is a victim of the changes taking place in the ECO arrangements. She alleged that she had not had a reply from the Secretary of State. If that is true, we will certainly investigate and make sure that that point is chased up. I will, of course, write to her on the particular issue facing her scheme in Clifton and see exactly what the situation is. It is not true to say, by the way, that all six of the big six cheered when the announcements were made on the extra two years for the ECO. Some of those who had already committed to the work were not at all pleased that their competitors were being given further time, but I will look into the specific points mentioned.
On the specifics of the debate, as the NAO has acknowledged, the levy control framework is a valuable tool in supporting control of the costs to consumers as we pursue our energy policy objectives. The framework helps to drive investment in our energy sector. It helps to create jobs and growth, and, of course, takes us to a leaner, more secure energy supply. However, I recognise that proper oversight of the framework is important. Those who pay the bills, our constituents, need to know that Parliament is looking out for their interests in scrutinising this expenditure.
Let us look first at why we need the levy control framework. We need to secure an energy future at a cost that we can afford, and that is a huge task. One fifth of our power stations will go off line in the next six or so years. By 2030, if nothing else changes, we shall be importing 70% of our gas. Eight of the nine existing nuclear stations are scheduled to have closed by the time Hinkley Point C opens. However, in the same framework, energy demand may have doubled by 2050. The generation mix will have to tip significantly towards low carbon if we are to meet our legally binding climate change targets.
We are working to reform our energy sector to unlock investment now, and to create a framework for the delivery of a secure energy future. Nearly £40 billion had already been invested in the electricity sector between the beginning of 2010 and the middle of last year. More than 16 GW of new capacity has been brought on to the system, including five new gas plants, and a sixth is under construction. Two huge offshore wind farms opened last year, and we are seeing a very healthy pipeline in key technologies, including four more large offshore wind projects which are under construction. We remain No.1 in the world for offshore wind, and it is the work of the Government and, indeed, the work of the House that has enabled that to happen.
The Energy Bill received Royal Assent last December. That significant milestone laid the groundwork for the delivery of electricity market reform and sent a strong message to investors and industry about the cross-party agreement on the fundamentals of energy policy and the framework that we are establishing. The levy control framework is a key part of that. It provides certainty for investors, helps to control the costs of energy, and helps to ensure that the Government are held to account.
Last Monday I co-chaired the Offshore Wind Industry Council, which consists of many chief executives from different companies that are investing in the United Kingdom. They told me that the stability provided by the levy control framework had been an important factor in their decision to continue to invest in the UK. That is one of the reasons why the figures from Bloomberg show that the average annual investment in renewables has more than doubled in the current Parliament, from £3 billion to nearly £7 billion.
The provision of low-cost, low-carbon energy, improved energy security and the tackling of fuel poverty are all outcomes that the levy control framework helps to deliver, but it is obviously important for the impact on bills to be scrutinised closely and carefully as we pursue those goals. My Department is acutely aware of the pressure that consumers are facing, which is why we took action to reduce bills by an average of £50. The Opposition have a different approach, and we may disagree on the merits of that approach, but I think that Members on both sides of the House can agree that the cost of energy matters deeply to our constituents. It is therefore important for us to have an informed debate about it.
Let me say something about the work that we are doing to increase transparency. In March last year my Department published the prices and bills report, which showed the impact that our policies have had on bills in a clear and transparent way. The annual energy statement sets out our priorities, and an assessment of our progress in meeting our ambitious targets. In addition, Ofgem reports regularly on the costs and impact of each of our existing schemes.
During this evening’s debate, we have heard much about the coverage of the levy control framework. I do not want the purpose of the framework to be misinterpreted. It is a formal part of the public expenditure control framework. We have controls for departmental expenditure and annual managed expenditure budgets, and we also need controls for levies. However, the public expenditure control framework does just that: it exists to control public expenditure. Policies such as the energy company obligation are regulations, not public expenditure, so not all policies are considered public expenditure. The ECO is regulatory in nature and so lies outside the existing departmental expenditure limits and annually managed expenditure budget frameworks, but the fact that some consumer-funded policies sit outside the levy control framework does not diminish the oversight they should, and do, receive. Parliament has debated and passed primary and secondary legislation for all our major policies. Impact assessments that support those debates set out the full economic rationale for the action we propose to take.
We also take steps to monitor the costs of these policies and put that information into the public domain. On the ECO, for example, we published an assessment of the costs of compliance. Our bills and prices report takes account of the costs and benefits of all significant consumer-funded policy, including transmission costs, the ECO and smart meters.
However, we are not able to include three of our levies—the renewables obligation, the feed-in tariffs and the warm home discount—in our annual accounts. To those who have asked why not, the answer is that the Comptroller and Auditor General rightly requires Departments to meet international financial reporting standards. For the renewables obligation, feed-in tariffs and the warm home discount, revenue does not flow through the Exchequer. Instead, industry collects the money directly from consumers and industry controls how those funds are used to meet the regulatory requirements. It follows therefore that the associated expenditure also cannot be included in my Department’s accounts and if it was, the head of the National Audit Office would be forced to quality it. The Government do not gain additional funds through these levies to spend at their discretion.
That is a fairly simplistic explanation of a technical accounting issue and I am sure hon. Members appreciate that the time available tonight does not permit me to go through the detail of international accountancy regulations.
I have asked my officials to work with Treasury officials and the NAO to try to overcome this issue to maintain a clear line of sight, but as the Chief Secretary to the Treasury set out in his letter to the Liaison Committee in November, we have not been able to find a way through this for the existing levy schemes. However, I can assure the House that revenue and expenditure for contracts for difference and for the capacity mechanism— a point raised earlier—will flow through public sector bodies, and they will therefore be included in my Department’s account and will form part of the estimate.
John Robertson
Does the Minister have any idea how much money we are talking about that is not being shown?
Michael Fallon
I think at this stage of the debate the hon. Gentleman will probably allow me to write to him about that as I do not have that figure at my fingertips. However, those are the three principal levies that are not included in the main estimates. As I have said, the revenue and expenditure for the CfDs and the capacity mechanism will be included in our account and will form part of the estimate.
So what we now need to do, working closely with Parliament, is find a satisfactory alternative for the existing schemes. The Committee’s report has provided a very useful contribution to this debate, and I am going to ask my officials to consider carefully the points that have been raised and I will also reflect the Committee’s points to the Chief Secretary to the Treasury when I next discuss this with him.
I also recognise the accountancy and constitutional challenges this issue presents. Notwithstanding these technical challenges, I would like to set out now my intentions for the future reporting of consumer-funded policies, which lie at the heart of the Select Committee’s concern. First, I can confirm that the Government will publish information on consumer-funded policies that covers actual expenditure and forecast expenditure, and that captures the progress we are making towards our policy ambitions. I agree that that information would benefit from a proportionate independent audit and from being formally presented to the House. It is my intention to publish this information annually. The Chief Secretary wrote to the Chairs of the relevant Committees on 5 November, suggesting that this information should be published no later than Ofgem’s report on the renewables obligation. That report is due in March next year, but we need to do better than that, which is why my officials will work with their counterparts in Her Majesty’s Treasury and the National Audit Office to bring that date forward.
I hope that has been helpful. As I have said, we have made some real progress in delivering the investment that this country needs in its new energy infrastructure. The levy control framework is an important part of that process, giving confidence and transparency to investors. But Parliament has an important role in scrutinising the Government of the day and their actions on behalf of our constituents, and I welcome that scrutiny. I hope that the improvements I have suggested to the House tonight will help Parliament in performing its role in doing exactly that.
Question deferred until tomorrow at Seven o’clock (Standing Order No. 54(4)).